Home prices in Canada may not fall as much as some are forecasting if the unemployment rate drops to single digits, according to a former chair of the Canada Mortgage and Housing Corporation (CMHC).

“What will drive home prices down more than anything else is if people are unemployed for a long time. That’s just an economic reality,” said Robert Kelly, who is also a former CEO of The Bank of New York Mellon, in an interview with BNN Bloomberg’s Jon Erlichman Monday.

“If you don’t have a job, if money isn’t coming in, then you’re going to have start thinking about alternative arrangements for housing.”

Last month, the CMHC warned home prices could decline as much as 18 per cent if the Canadian economy doesn’t recover this year from the impact of the COVID-19 pandemic. But Kelly said that outcome isn’t set in stone.  

“If the unemployment rate goes from 13 per cent currently, down to single digits by the end of the year – which would be a little optimistic but certainly possible – it may be that housing prices don’t go down that much. Maybe five per cent, maybe 10 per cent,” he said.

“There’s a lot of people who think that could be a good outcome, including myself. You never want to see housing prices go down, but like any real financial instrument or any real financial asset, they go up and down in value over the course of an economic cycle.”

The national housing agency announced last week it would be tightening the rules for insured mortgages — those with less than a 20 per cent down payment — in an effort to protect new buyers and taxpayers in the event of a market correction.

Home prices have not seen much movement in Canada’s largest markets since the pandemic took hold, with the benchmark price rising modestly on a year-over-year basis in the Greater Toronto Area last month. Meanwhile, Vancouver-area prices have remained steady.